A bill that would extend tax breaks for apartment and hotel construction to all corners of Shelby County has already received approval from the Tennessee Senate and is headed for approval by the House.
State Sen. Brian Kelsey of Germantown and state Rep. Kevin Vaughan of Collierville are sponsoring a bill (SB1736 and HB2064) to amend a section of Tennessee Code Annotated to allow industrial development boards (IDB) in Shelby County to approve PILOT (payment-in-lieu-of-tax) incentives for apartment and hotel projects.
Currently, PILOTs for multifamily residential projects are limited to a Central Business Improvement District, which for Memphis is inside the Parkways, plus the Mid-South Fairgrounds.
“It’s important to realize this bill does not make any determination on individual projects,” Vaughn said. “It merely admits local IDBs to make the decision for themselves. The decision to grant the benefit still 100 percent lies on the local level.”
On Wednesday, the house’s Local Government Subcommittee recommended the bill be passed by the full committee.
When subcommittee member Rep. John Crawford asked Vaughn who brought him the bill, Vaughn said it came from the Economic Development Growth Engine (EDGE) for Memphis & Shelby County.
Last July, EDGE president and CEO Reid Dulberger said it was the intent of EDGE and Memphis Mayor Jim Strickland’s administration to ask the legislature to create a carve-out for Shelby County.
John Lawrence, EDGE’s senior economic development specialist, attended the subcommittee meeting in Nashville Wednesday and confirmed EDGE was aware and in support of the bill.
“The City of Memphis, unincorporated Shelby County and some of the other municipalities have interest in looking at projects that are not in the existing geography,” Dulberger said in a recent interview with the Memphis Business Journal.
Dulberger said the Strickland administration wants to build population density within the city, and PILOTs are the tool for spurring apartment development in areas such as Binghampton, Whitehaven, Orange Mound, New Chicago and Frayser, where the market’s rent structure will not justify new construction or substantial renovation.
The legislation’s sponsors are from Collierville and Germantown, and the bill would allow multifamily and hotel projects in those areas to be incentivized, too. But Dulberger said he would be surprised if the bill was used for those projects.
“Knowing the mayors and the climates there today, I don’t think that they believe they need the tool and the empirical evidence supports that,” Dulberger said, pointing to the success of Germantown, Collierville and Bartlett in attracting new projects.
Vaughan echoed Dulberger’s observation of the current political climate.
“In Collierville and Germantown, those locations are not receptive these days to multifamily projects at all — much less with an incentive,” Vaughan said. “The bill won’t change that local control of land use, but it gives areas, where they feel the need to be incentivized, [a PILOT] if they see a project they want to move forward.”
Jim McCullough, senior vice president of Commercial Real Estate with SunTrust Bank, told the Memphis Business Journal that he knows of several “great projects lined up” should the bill pass.
While he is aware of EDGE’s interest and the support from both Strickland and Shelby County Mayor Mark Luttrell Jr., Vaughan said he has not heard from other IDBs or developers.
“I am unaware of any specific project that is awaiting this legislation,” Vaughan said.
Vaughan expects the bill to make it to the House floor in no more than three weeks.
“We believe we here in Shelby County are sophisticated enough to use [PILOTs] appropriately and we are simply asking the state for the freedom and flexibility to use that tool where appropriate,” Dulberger said.